The Washington Post Gives Its Readers a False Lesson to Push Its Deficit Agenda

"The fiscal crisis sweeping Europe, in which Ireland and Greece have already needed bailouts and Portugal, Spain, and Italy could come next, offers the United States a brutal lesson. By the time the bond market turns on a country - when investors demand higher interest rates or refuse to roll over debt at any price - policymakers have no good options left.

"When that day arrives, a government has little choice but to slash budgets or raise taxes if it wants to satisfy financial markets. But those actions make an already miserable economic situation worse and tend to be vastly unpopular, costing politicians their jobs. Just ask the Irish, who are in such a cycle now."

Actually this is not a story that the United States should ever face -- contrary to the Post's sanctimonious lesson for its readers. Unlike all the countries on its list, the United States has its own currency. This means that, in a worse case scenario, Congress could have the Fed buy government debt. This could create a problem of inflation, but it would not lead to a crisis of type that the article is describing.

The Post's misrepresentation here would be comparable to telling someone living in a steel high-rise that the fire in the straw house across the street shows what happens when you aren't careful with matches. While fire can also harm a steel high-rise, the nature of the risk is qualitatively different than the risk faced by someone living in a straw house. It is wrong to imply that the two risks are the same, as the Post asserts in this piece.